bargainman
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Posts posted by bargainman
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Bruce from Fairholme has often said that they researched all the real estate. Back then he said they ended up *conservatively* with around $100 per share in real estate. Then he said he adds the brands, plus what you'd pay for the largest appliance servicer in the US, plus the other bigs and pieces, and you get a reasonable amount more than what it is today.
Personally I'm starting to think that SHLD is closer to a cigar butt than a BRK investment. There probably could be downside in the stock price in the near term, but in the end the company has a pretty good downside floor in liquidation. I don't think EL will be able to mess that up. Actually my guess is that there are a few more puffs left actually.. Buy when it drops and everyone is maligning it, sell when it jumps...
Also, and this is purely my opinion and speculation, I don't think EL is suited to be a Buffet. The managers who work for Buffet generally praise the man to no end. I don't think I've heard a single good thing said about EL from his operations staff. Also EL was talking about running experiments in many different Sears and Kmart stores to make sure that the concepts work before rolling them out on a larger scale. That works to a degree, but not when you lose staff, and not when it paralyzes the business. Anyway, that's my 2 cents :-)
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The industry is primed to always stay fully invested. It's the greatest statistical Trojan Horse in the financial world! Always stay fully-invested...buy, hold & prosper...missing the 30 best days reduces your results by 50%...etc. This is what statistics tell us, so the investment managers fully buy into it, and in turn they feed their clients the same information.
The problem is that the buy and hold crowd never points out the opposite side of the statistic. What if you missed the 30 worst days? What would your returns be like then? I can't remember where I saw it, but it was very significant. Siegel in his book showed that doing something simple, like tracking the 200 sma, got you close to S&P returns with a significant reduction in volatility. I agree it all has to do with context though...
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I agree with Sanjeev. Apparently in credit busts it takes about 5-6 years for housing to find it's bottom. The huge issue with real estate is leverage. IRAs aren't leveraged. Most people would put down 5-20% on their home. So if it goes up you get a 5x-20x multiplier. But same on the way down. The other big consideration is the baby boomers. Many are close to retirement. After this dump they aren't likely willing to jump in. Either that or they will be desperate, sit out the rally,then buy at the top.. Hopefully not, but that's usually what happens..
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Let me put a twist on the same question. Warren Buffett of the... and BRK of the...
I'm more interested in them if I can invest with them! :-)
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Regarding kawikaho's point on laptops, and also the point made earlier about people not 'preconfiguring online' as much anymore: I think there's a pretty good correlation here. When I used to have a desktop, all I cared for was the specs. I mean one desktop is the same as the other, then I can get the keyboard I want, monitor I want etc. When it comes to laptops though, I want to feel and see what I'm getting. I'm going to be carrying it around and typing on its keyboard. I was at the Costco the other day, trying out the dell laptop they had, and it had this tiny trackpad, and worse of all it was off center to the left. Most people are right handed. So it was very uncomfortable to use. Lenovo took over IBM's laptops, and IBM used to be a typewriter company, so they generally know how to make a comfortable keyboard. Dell's history is beige boxes as cheap as possible. Great for the server business, not so great when a greater and greater percentage of the business become laptops. That said, people have made the point that they are pretty darn cheap.. and who's going to argue with Watsa! :-)
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I'm not sure if this is true everywhere, but for people who are underwater in a state where the mortgages are non-recourse, even if they walk away from the mortgage, in the end the bank will end up putting the difference in the loan value vs the house value on the person's 1099 at the end of the year. So if there is a significant incentive to not walk away. It's something that's not often talked about, but from what i've heard it is the case. So say a mortgage is underwater by 100K and the payer walks away. At the end of the year they'll end up with an extra 100K as reported income and owe the IRS taxes on it. From what I've heard..
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I think you guys are being a bit too optimistic on WEST and/or management. There is absolutey nothing special or particularly interesting about this company that I can see, or even any evidence of something special that may develop in the future.
I'm really curious on what you base this assertion. The fact that Biglari has outperformed the S&P by 17% per year (if I remember correctly from one of Sanjeev's posts) over the last 7(?) years in his hedge fund, and is using WEST as a vehicle for investments in the future makes it at least somewhat special/interesting. The fact that he focuses on capital allocation and finding the best use for capital as opposed to just putting money back into the same businesses is somewhat special compared to a lot of companies out there. The fact that at the age of 30 something he's had a very successful hedge fund, taken over a reasonably large public company in a proxy battle, and turned it around in a very short period of time is somewhat interesting.
I'm not a complete Sardar groupie (I do think he's had his share of less than perfect moments), but I don't see how you can say that WEST is "absolutely nothing special or particularly interesting". Please let us know what you base this statement on.
Thanks.
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Take a look at this thread where Sanjeev briefly discussed Chanticleer:
http://cornerofberkshireandfairfax.ca/forum/index.php?topic=822.0
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2 notes about Miller. One is that his 15 year record is supposedly a fluke of the calendar. Apparently it's because the end date was a particular month that he just happened to beat the S&P for 15 years in a row. If you look at other months supposedly he doesn't beat consistently (just read that somewhere I didn't do the math myself). Second, I'm pretty sure I have heard him write or say something along the lines of what you're saying. Freddie and Fannie I think were either zeros, or were going to go up 10x supposedly. So that's why he made the bet. Problem is that a lot of these companies were correlated to the same thing, so a number of those zero/10x big bets went bad.
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i used to trade options back in the day, hoping i could unlock their secrets. i could never find a way to make enough to pay for the hrs upon hrs spent concocting strategies both simple & complex, screening for ideal setups, monitoring position gamma, delta, theta, implied volatility, etc. and if i could console myself that at least i was enjoying the challenge, that quickly evaporated come tax preparation time at yrs end! what a headache!!
Link, I think there's really little point in trying to 'unlock their secrets' per se. The options markets are traded by market makers who have been at it for years and years, so I don't think there are many inefficiencies to be exploited in the options themselves. Where I think there are inefficiencies is in the fundamental analysis of the underlying stock, and you can use option set ups to take advantage of those. Options themselves don't really present much in the way of arbitrage capabilities as far as I can tell, since otherwise the market makers would be the first to take advantage. There are so many market makers out there trying to get an edge that if you try to play their game you will lose. They have way lower costs both in commissions and in use of margin. I think the best way to win the game is to pay more attention to the long term and the fundamentals where I think market makers tend to pay less attention.. That said knowing a lot about combos I think is helpful in terms of knowing what sorts of options you have when a trade goes bad etc... It's definitely an interesting intellectual exercise when greeks are involved :-)
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I'll second the thinkorswim recommendation. Check out their chat archives. They have great sessions by folks who have been market makers for years so they talk a lot about risks that aren't obvious at first glance.
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Really?? I'm no fan of Bill Miller or Nygren. The fact that they did not see the housing bubble makes me question them as value investors.
In all fairness, not many people did (including Buffett). Miller's fund got hit hard last year, but most money managers did. Miller has always been largely a buy & hold guy, so he's not someone who typically sells all his stocks heading into a recession.
The thing that bothered me immensely about Miller was that he bought stocks with large parts of his portfolio that had huge risks that he couldn't possibly have understood. I mean he bought large slugs of Freddie and Fannie as the market was getting unstable, there were huge signs of government intervention etc. There's no way he could have understood what was on their balance sheet. No way. The big disappointment I had with Nygren was that he bought such a huge slug of wamu. I mean once again, did he really understand the balance sheet? Maybe he did. Did he even think about the risk of a run on the bank? I'm not sure if he did or not. Also, it was his biggest position. Was that really the best possible idea he could have come up with? Very disappointing IMHO.
Fairholme also got hit hard but none of the positions were permanently impair the way that Miller's were. Almost the same with TAVFX (except for MBIA and I htink there was another one there too..). So to me, everyone got smacked unless they used puts or got some CDS. But the ones who got hit cause they bought something they didn't understand were the disappointing ones to me...
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The thing I wonder about is if this is going to have a huge effect on the American psyche or not, the way that the Great Depression did. The Great Depression stayed in the American psyche for a very very long time. People were frugal when they remembered how hard it was to get food on the table. Apparently even though overall unemployment was 20% (or 25?), the unemployment in the cities was 40% or so. The thing is that over the last 20 years Americans have had it beat into them that they need it now, they deserve it now, they should spend money now! I wonder how long it's going to take to reverse that effect. 2 things I see having a serious effect are 1. housing - both people losing their houses, and their kids/kids friends remembering how it was to default and foreclose and be forced out of the american dream; and also people who bought in too high who just honestly thought the most things would fall would be 10% or something since "it's never happened before", and seeing their life savings or more demolished for a long time even if on a 30 year fixed. and 2. the baby boomers who basically saw their equity vanish and their 401ks get destroyed with conservative companies like AIG and Freddie etc. That of course assumes that the boomers don't get pulled into the market again as it keeps going up and htey get afraid that 'they'll miss the boat".
I think the first has the potential to have a very large ongoing effect on the american psyche. I'm not sure if it will have the same degree of severity as the great depression where people had to wonder from city to city looking for work (still remember the haunting pages of "Grapes of Wrath")...
On the other side of the fence it's probably going to be a long time before companies and creditors are willing to lend so freely too...
Just some random thoughts...
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I think in the US market there are some stocks right now that could return in the 35%+ range, with the right option combination you could easily boost that to 50%+ with no added risk (options are still often mispriced).
step 4) learn to calculate risk/reward with option combos and use them to boost your returns
step 5) learn overbought and oversold conditions that often happen with stocks/options and learn swing trade (u must be able to value the underlying security properly, of course)
step 6) do combination of 4) and 5) until you have a ton of money that the liquidity of the stocks and options you are trading are no longer meaningful for the size of your portfolio
Yudeng, you always come up with interesting posts. I'm curious, what sorts of option combos do you use, and what sorts of oversold/overbought 'indicators' do you look for?
On the combos are you mostly buying options or selling options? Do you set up synthetic longs, or do ratios/backspreads? I presume you look more for unlimited upside scenarios than for selling theta decay? Is that right? So maybe buying calls and either selling puts to fund them, or selling a fewer number of sooner expiring calls?
Then what do you use to time your exits and entries? Do you just use the classic 'calculate intrinsic value', buy at a MOS and sell as it gets close to the IV? Or is there something else you're referring to?
Thanks for any insight.
Bargainman.
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So I was glancing at the lastest 10-k and it had this in it:
GOING CONCERN
At December 31, 2008 and 2007, the Company had current assets of $23,556 and $95,893; current liabilities of $686,125 and $349,268; and negative working capital of $662,569 and $253,375, respectively. The Company incurred a loss of $1,088,588 during the year ended December 31, 2008. The Company receives quarterly cash inflow of $25,000 from management fees and $11,500 from investment distributions, but expects quarterly cash outflow of approximately $130,000 per quarter for 2009, assuming the acquisitions discussed in Note 11 are not completed.
The Company expects to meet its short-term requirements through the liquidation of one investment to raise approximately $42,000 in cash; return of the advance made for the development rights of Hooters restaurants in Nevada in the remaining amount of $70,000; and loans from its CEO in the amount of $50,000.
The Company expects to have sufficient funding available from these sources until the possible second quarter of 2009 close of the acquisitions of HI and Texas Wings. Subsequent to the close, the overhead requirements would be covered by distributions from the operations of HI and Texas Wings.
24
In the event the acquisitions do not close, the Company expects to have sufficient funds available to meet its requirements until May 2009, when the Company is scheduled to receive a distribution from an investment in the amount of approximately $1,275,000. At that time, the Company plans to repay the line of credit, any other short-term borrowings and have sufficient cash to cover all overhead requirements for at least another year while increasing the funds which Advisors manages.
If the above events do not occur or if the Company does not raise sufficient capital, substantial doubt about the Company’s ability to continue as a going concern exists. These consolidated financial statements do not reflect any adjustments that might result from the outcome of these uncertainties.
Going to dig around a bit more, but thought I'd ask. Does anyone know the status of these events? In particular did their 1.275 million sale happen?
Also here:
http://www.sec.gov/Archives/edgar/data/1106838/000114420409028984/v150530_8k.htm
it looks like their plan to buy all of Texas Wings Hooters 45 stores was terminated.
On the other hand it looks like they are acquiring Hooters?
http://www.sec.gov/Archives/edgar/data/1106838/000114420409024044/v147997_10q.htm
On March 11, 2008, the Company entered into a Stock Purchase Agreement for the purchase of Hooters, Inc., Hooters Management Corporation and their related restaurants (collectively “HI”) from the nine current individual HI shareholders, many of whom will continue to stay involved in the ongoing operation as shareholders of Chanticleer. The transaction is valued at approximately $55.1 million and could close in the second quarter of 2009.
The closing of the transaction is subject to Chanticleer raising the necessary debt and equity financing to complete the acquisition. Chanticleer has retained an investment banking firm to assist in securing the equity capital necessary to close the proposed transaction. Chanticleer has completed all other conditions and is in process of raising the necessary debt and equity financing to complete the transaction. (See current status below.)
Looks like they recently changed from a BDC to a regular operating company. Anyone else following this other than Parsad, who had previously said he wasn't going to comment?
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In the US, hasn't it already crashed in certain places? Phoenix and Las Vegas come to mind.
I imagine in places like NYC and San Fran, there would be higher demand, even in recessionary periods, that results in less of a drop.
RE is what it is, I think that board members see RE differently compared to the general public. I wouldn't want > 50% of my net worth in my house, but for many this is the case. I think this is why the US govt is "smoothing" out the decline, but I think that people still feel the hurt.
In Canada, I believe that the lower overnight rates are creating the unintended effect of cheap money for home buyers. In general, I don't think Canadians are much better off than Americans w.r.t. debt to income ratios. It's just that the sentiment is still generally positive up here.
The decline in California has been brutal. 50% in some places. San Francisco, San Jose have areas with 40% declines. The government has done very little to help California, at least in the Bay area. The special refinancing they've set up only goes if the loan isn't more than 105% of the house value, which with 40% declines just doesn't cover it (even if someone put a 20% downpayment). Also any of the special refis above 417K haven't hit the system yet, so people with those loans (most people) haven't been able to refinance in the bay area. Florida has been similar, but at least most condos aren't above 417K. Several properties went from 350 to about 150 so the crash has definitely happened. Supposedly it's going to continue down another 10-15% on average.
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I'm not a big real estate investor, but prior to this, I was hoping that there would be a serious Great Depression #2, so that world prices on everything would crash.
Prior to the credit crunch, I was mainly in cash and was hoping to buy everything, even real property at bargain basement prices.
Unfortunately the US Govt. stepped in and bailed out everyone, which sucks.
In the end, still stuck to equities/securities/bonds, rather than real property.
Where I live, the govt. has made things even worse by giving people tax incentives and govt. grants to purchase property, which has inflated prices even more than they should really be. The crash that was supposed to happen, never happened.
I wish they would just let the free markets work sometimes and play out (crash in this instance), it's unfair to those who have done the right things leading up to the downturn and not get themselves into a sh*&tload of debt and ruin themselves.
I can certainly see where the arguments for NOT bailing Wall St are coming from.
Are you really serious about this? You wish there was a great depression 2? have you read about the Great Depression and the human suffering that occurred at that time? You wish there was a Great Depression so you could buy stuff really cheap and make money? This crash has been unfair to a lot of people for many different reasons. But life is unfair, that's no reason to wish for human suffering on that scale. I would never wish for a Great Depression. Go read Grapes of Wrath and then think about what you are wishing for.
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If the focus is on individual success, then he needs to elaborate on WHY DID THOSE PEOPLE SPENT 10,000+ hours? He kind of brushed aside personality throughout the book, yet this the most important reason why individuals put in those grueling hours.
10,000 hours and luck is how you acheive success, but personality + passion is how you put in 10,000 hours and increase your luck.
I rather learn more about WHY PEOPLE put in 10,000 hours. From my own experiences, it generally comes from a desire to win (whatever this means, but that's the internal engine) and passion (psychological feedback loop is such that what most consider to be 'work' they consider to be 'enjoyment').
So that's my 2c - that reading this book gives you a sense of systemic imbalances in opportunity, but certainly does not explain why certain individuals are able to do the things that cause success more than others.
A good book would focus on both, as that would take away people's excuses to say "I don't have this, so I won't try".
Yu, I generally agree, and I heard that "Talent is Overrated" and "Talent Code" goes more deeply into that aspect. I started the former but haven't gotten through it yet...
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There is no substitute for experience.
Its not so much a matter of intelligence as it is the psychology of investing.
Certainly some have it right from the get go but many aquire it.
Experience coupled with intelligence and the proper frame of mind and learning from mistakes.
This may be why Buffet states: Investing is simple but not easy.
Michael Sellers would famously disagree :-)
http://www.beearly.com/pdfFiles/Sellers24102004.pdf
"And the reason is that it doesnt much matter what your IQ is, or how many books or
magazines or newspapers you have read, or how much experience you have, or will have
later in your career. These are things that many people have and yet almost none of them
end up compounding at 20% or 25% over their careers."
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You could also invest in defense stocks like Fairholme's been doing. Bruce says, and I generally agree, that no president is going to want the US to get attacked on their watch. Add to that the power of the military industrial congressional complex and it's probably not a bad place to have some money.
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If you look at this link:
http://ccbn.10kwizard.com/xml/download.php?repo=tenk&ipage=6315174&format=PDF
and get to page 38 there's some interesting reading. I tried to copy it here but the PDF is protected. Basically they manage the insurance investments Graham and Dodd style, and claim that since 2000 to 2008 while the Wilshire 5000 has dropped 25%, their portfolio has gone up 44%, while the equity portfolio section going up by 109%. If you don't count 2008, the total return was 75% vs 244% for their equities. So they are at least reasonable value investors, even if 2008 smacked them up.
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OK one more thing then I'll stop :-) I do agree that if you're not capable you should definitely NOT be concentrated in your investments! So if you break it into a chart with the 2 dimensions being "capable/not capable", and "diversified/not diversified" I'd make it be this:
Diversify Focused Capable OK OK less capable OK NOT OK I think I'm up to about 5 or 6cents by now :o
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I agree with your comments. As Buffett pointed out, one should decide if he is a no-nothing investor, or if he is a capable investor. If he belongs to the first category, he should buy a low-cost index fund with a dollar-cost averaging method. If he is a capable fellow, then he should concentrate his investments in a few good companies with zero risk of permanent loss of capital. If the investor's assessment of himself is wrong, hopefully he recognizes his shortcomings in time and sticks to indexing going forward.
Personally i don't buy an all or nothing approach. There is a range. Also as I pointed out in my post above there are many value investors who have averaged very high returns using a highly diversified approach. Including Ben Graham the father of value investing! I mean is anyone going to argue that Ben Graham was not "A capable investor"? Being that he wrote Security Analysis, the Intelligent Investor, was the teacher of Buffet, among many others, that he used a highly diversified strategy in his partnership, that he was incredibly knowledgeable when it came to investing and analyzing companies, I don't buy that 'if one is a capable investor, one should be concentrated". Ben Graham was most certainly a more than capable investor, confident in his skills, and he chose for many many years to be highly diversified.
I think highly skilled individuals can choose to be diversified. Seth Klarman is often quoted as saying "You never know everything". (and sorry Ben Hacker, I am just learning more about him.. I knew he had been holding 40% cash, but something made me think he was a focused investor.. just read that apparently if he's going to take a 10% position, he wants a board seat...) That is so true. I mean I work at a 6000 person company every day, studying it inside and out all day long, and I know next to nothing about it! If someone isn't a full time investor they have no hope of truly understanding everything about a company. Even if they are a full time investor they probably don't know a whole lot. I mean Buffet bought GenRe and almost got killed! Buffet! When Buffet bought Geico he told someone "This is the first time I've bought an investment that may go to zero".
I think that Buffet was really the first or at least the major proponent of concentrated investment. But remember, Buffet knew Security Analysis inside and out. Apparently he used to recite passages of it back to Dodd and Graham. He read it many many times and had what sounded like an almost photographic memory. He's brilliant and probably there are few who will ever be at his level. So the question is, if he was the guy who started the 'focused investing" trend, are you really in the same category? I'm certainly not. That said I know a lot about investing and am not in the know nothing crowd either. So I'm somewhere between. Because I don't choose to concentrate 40% of my worth in a single investment doesn't make me a "not capable" investor, just like it didn't make Walter S., Ben Graham, Royce, or any of the others who were highly diversified 'not capable'. Even in other styles there are successful highly diversified capable investors (Peter Lynch and Shelby Davis come to mind)
As Sanjeev said, nothing can be viewed in a vacuum. But my main point is that other than confidence in one's abilities, and capability as an investor, there are other factors that can decide if someone should be highly diversified or not. Also, highly capable investors can and do choose to be focused OR choose to be diversified! I just have to hammer on this point cause it keeps coming up over and over, and the implication is always "if you're very diversified, you're not capable". But that's so untrue.
Just my 2c added to my 2c in my previous post for a total of 3.5c (since I probably repeated some of my previous post :-) )
Eddie Lampert in Barron's
in General Discussion
Posted
I'm not sure where this comes from. In every interview/call I've heard Bruce speak, he's usually quite humble, saying others are smarter than him (or at least Buffet and the LUK guys). I don't think I've ever heard him trumpet himself in a boastful way at all.
Bruce saying that Lampert wasn't as brilliant as hyped was just a statement of fact. He still says EL is very smart, and obviously thinks so otherwise he wouldn't have 5%+ of his fund in there. I mean people were hyping Lampert like he was some god who was just going to turn the giant Sears/Kmart conglomerate on a dime. The fact that he didn't live up to the hype is kind of anticlimactic I think. Turning a company that size takes a great operator who attracts great talent. Lampert is a great investor, not a great operator. Everything I've read says he's aloof and painful to work for and painful to even talk with. Some article/interview with a guy who worked with him at his hedge fund for years said that the guy never got to know Lampert, EL just had a personal shield around him. That's not the kind of person who is going to attract top talent to turn around a giant company like Sears and Kmart. If EL was hard core he would have liquidated SHLD, selling the real estate and brands etc. But I think EL ran into the same problem that Buffet did with Coke and other large positions. At some stage doing these giant scale liquidations is just too taxing on the human side. Liquidating SHLD would have meant putting 10s of thousands of people out of work for profit, and I don't think he wanted to do that without giving the turn around a go. Unfortunately for him, in the middle of the turn around came the largest recession in decades.
Or that's what I think :-)